RBI Rewrites Bank FX Risk Rules, Seeks Feedback on Global Alignment
Overview
India's central bank, the Reserve Bank of India (RBI), has proposed significant changes to how banks calculate foreign exchange risk exposure and associated capital requirements. Aimed at aligning with global standards, the new norms are slated for implementation by April 1, 2027. The RBI is actively soliciting feedback on these crucial adjustments.
Regulatory Shift Underway
The Reserve Bank of India (RBI) unveiled proposed amendments on Wednesday that will fundamentally alter how commercial banks assess their foreign exchange exposure and the capital they must hold against such risks. These changes signal a significant recalibration of risk management frameworks within the Indian banking sector.
Aligning with Global Benchmarks
The central bank stated that the modifications are designed to synchronize domestic regulations with international best practices. This move aims to foster a more uniform and robust approach to managing foreign exchange volatility across all regulated financial entities.
Key Proposed Changes
Under the proposed framework, banks will no longer calculate onshore and offshore net open positions separately. Instead, a unified calculation will be mandated. The RBI also plans to allow the exclusion of certain "structural" foreign currency investments, such as those in overseas subsidiaries or branches, from net open position calculations.
A notable adjustment includes modifying the "shorthand" method for FX risk calculation to treat open positions in gold distinctly, aligning with global regulatory trends. Furthermore, banks will be required to incorporate all accumulated or un-remitted surpluses from their overseas operations into their net spot position calculations. The RBI is currently seeking public feedback on these proposals, with the new rules targeted for implementation from April 1, 2027.
